On December 31, 2021, Smith Ltd. has the following balances for accounts receivable and allowance for doubtful accounts: Accounts Receivable $382,000 Allowance for Doubtful Accounts (a credit balance) 4,200 During 2022, Smith had $2,865,000 of credit sales, collected $2,905,000 of accounts receivable, and wrote off $3,850 of accounts receivable as uncollectible. At year-end, Smith performs an aging of its accounts receivable balance and estimates that $3,800 will be uncollectible. Required: 1. Calculate Smith's preadjustment balance in accounts receivable on December 31, 2022. 2. Calculate Smith's preadjustment balance in allowance for doubtful accounts on December 31, 2022. 3. Prepare the necessary adjusting entry for 2022.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Aging Method
On December 31, 2021, Smith Ltd. has the following balances for accounts receivable and allowance for doubtful accounts:
| Accounts Receivable | $382,000 |
| Allowance for Doubtful Accounts (a credit balance) | 4,200 |
During 2022, Smith had $2,865,000 of credit sales, collected $2,905,000 of accounts receivable, and wrote off $3,850 of accounts receivable as uncollectible. At year-end, Smith performs an aging of its accounts receivable balance and estimates that $3,800 will be uncollectible.
Required:
1. Calculate Smith's preadjustment balance in accounts receivable on December 31, 2022.
2. Calculate Smith's preadjustment balance in allowance for doubtful accounts on December 31, 2022.
3. Prepare the necessary
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